No one enjoys the thought of being audited by the Internal Revenue Service (IRS). No one wants to receive a letter from the IRS. While not common, it is important to remember that audits are a routine part of the tax process. According to the IRS, for all returns filed for tax years 2012-2020, 0.49% percent of returns were audited. At Boelman Shaw Tax & Financial Planning in Des Moines, Iowa, we understand that facing a tax audit can be stressful. That's why we've created this helpful guide to surviving a tax audit, which will outline the steps you should take to navigate the process with confidence and ease.
Understand the Reason for the Audit
The first step in surviving a tax audit is to understand the reason behind it. An audit occurs to ensure your information has been filed correctly and follows applicable tax laws. The IRS may select your return for an audit based on random selection, computer screening, or a comparison with other taxpayers in similar situations. There are also warning signs that could trigger an audit such as not disclosing taxable income, typos, and using a suspicious amount of round numbers. Understanding the reason for the audit can help you better prepare for the process.
Gather Your Documentation
If your tax return has triggered an IRS audit, they will communicate everything in writing via mail. If you receive any calls demanding payment you are likely the target of an IRS scam. Before the audit, gather all relevant documentation to support the information on your tax return. This may include receipts, invoices, bank statements, and other financial records. Logically organize these documents to make the audit process smoother and more efficient. The IRS has three years to begin an audit, it is important to keep your tax documents until at least after that time has passed.
Seek Professional Help
Enlisting the help of a tax professional, like the experts at Boelman Shaw, can provide invaluable assistance during the audit process. A tax professional can help you understand the audit process, organize any mandatory documentation, and represent you during the audit. They can also help you negotiate with the IRS if any discrepancies are found. It’s important to remember to keep any documentation provided by the IRS so you can provide a complete picture of the situation to your tax professional.
Be Courteous and Cooperative
When dealing with the IRS, it's important to maintain a courteous and cooperative demeanor. Answer all questions honestly and provide any requested documents promptly. Being polite and professional can help create a positive impression with the auditor, which may lead to a more favorable outcome.
Know Your Rights
As a taxpayer, you have certain rights during the audit process. Familiarize yourself with the Taxpayer Bill of Rights to ensure that the IRS treats you fairly and respectfully. If you feel your rights have been violated, don't hesitate to bring it up with the auditor or seek guidance from a tax professional.
Be Prepared for the Outcome
After the audit is complete, the IRS will issue a report detailing any proposed changes to your tax return. Review this report carefully and consult with your tax professional to determine the best course of action. If you agree with the findings, you can sign the report and pay any additional taxes or penalties owed. If you disagree, you have the right to appeal against the decision.
Learn From the Experience
A tax audit can be a valuable learning experience. Take note of any mistakes or discrepancies identified during the audit and use this knowledge to improve your future tax filings. By being proactive and implementing better record-keeping practices, you can reduce the likelihood of future audits and ensure your tax returns are accurate and compliant.
A tax audit may seem intimidating, but with the right approach and guidance from tax professionals like those at Boelman Shaw Tax & Financial Planning in Des Moines, Iowa, you can navigate the process with confidence. By understanding the reason for the audit, gathering your documentation, and seeking professional help, you can not only survive a tax audit but also learn valuable lessons to improve your future tax filings.
Tax and accounting services provided through Boelman Shaw & Company, LLC.
Advisory services provided through BSC Capital Partners, LLC a state of Iowa registered investment advisor.